Decision making is a complex paradigm that can be influenced in many ways. One of those ways is the Anchoring Bias. The Anchoring Bias is our natural tendency to rely too heavily on the first piece of information we encounter. This ‘anchor’ can heavily influence our ability to make decisions.

First explored by Amos Tversky and Daniel Kahneman in 1974, anchoring plays a large role in how we judge value. The traditional approach is to assign an initial estimate or reference value and then adjust that reference to arrive at what we deem fair. The problem is these adjustments are often insufficient.

Not only that, but anchoring also greatly impacts our judgment of value on top of everything else. This is well illustrated by several experiments that demonstrate this cognitive bias.

In one study by Tversky and Kahneman, participants were asked to estimate the percentage of African countries that were part of the United Nations. Prior to making their guesses, participants first encountered a roulette wheel that was rigged to stop on either 10 or 65. This served as the arbitrary anchor in the experiment. Participants whose wheel stopped on 10 guessed lower (~ 25%) than participants whose wheel stopped on 65 (~ 45%).

As observed by Tversky and Kahneman, “different starting points yield different estimates, which are biased toward the initial values.”¹

Another study conducted by behavioral economist Dan Ariely asked an audience to first write the last two digits of their social security number. With this anchor in place, he subsequently asked whether they would pay a specific number of dollars for items whose value they didn’t know (i.e. wine, chocolate, and computer equipment). They were asked to bid on these items. The results are again surprising, as the participants who had higher two-digit numbers would submit bids that were anywhere from 60 to 120 percent higher than those with lower social security numbers.²

What’s interesting is how a completely irrelevant anchor can drastically change our assessment of value. We like to think that every new piece of information we encounter, is rationally interpreted and used in our decision-making process, but the reality is that the first piece of information has an uncharacteristically larger impact on how we judge value.

This is relevant to prices, experiences, negotiations, brands, and much more. First impressions are king, not only in the realm of relationships.

On an individual level, we end up filtering all new information against this initial anchor and make decisions from there, hence the term anchoring. To fully understand this cognitive bias, let’s explore a hypothetical situation.

Anchoring and Willingness to Pay

Imagine for a moment you were in the market for a new pair of shoes. You wanted to treat yourself so you set yourself a budget of $250. And so your search begins. You check out blogs, Instagram, and the latest drops. Finally, you find a pair that you’re absolutely in love with. The only problem is, it’s WAYYY outside your budget: $950. That’s crazy. That could be a month’s rent (or once upon a time it could have been). There’s no way you’re doing that. After all your budget is $250.

As you finally talk yourself out of it and are about to close the browser, you get a pop-up. $500 off all shoes. Today Only! This changes things.

At this point, our rationality flies out the front door and we can’t help but jump on the deal, simply because it’s a deal.

I’m saving half of our money! The shoes are worth $950 and I can get them for only $450, that’s a steal! I mean my budget was $250, but how can I not pull the trigger – the value is just too great.

You just got anchored. Your perceived value of those shoes is $950. You’re able to get them at half off. That is a huge difference. It’s hard to rationally not buy the shoes now. That first impression greatly influenced your decision. If the shoes had been $500 and on sale for $475, you probably wouldn’t have gotten them. That’s anchoring at work.

This happens ALL. THE. TIME. We often buy things just because they appear to be a good deal, whether that’s manufactured or not. Our willingness to pay shifts dramatically because of the anchor.

As this example illustrates, an effective anchor can make all the difference when it comes to judging value. What’s even crazier is how an anchor doesn’t have to be the same as what it is being compared to. Something as simple as the first two digits of your social security number can influence your perception of value. With that in mind, let’s see how this is being used today in e-commerce.

Anchoring in E-commerce

Anchoring is one of those principles that you see everywhere once you’re aware of it and e-commerce is no exception. Two of the most common strategies are focused on discounting and social proof indicators.

Discounting Prices

One of the most common ways to leverage anchoring is through discounting prices and strikethroughs. In the below, we see three brands, Joybird, Zara, and Walmart, all using strikethroughs to communicate discounts, but also leverage anchoring.

By displaying the original price, we get anchored to the perceived value of that item and instantly compare it to the discounted price. That comparison makes us feel better about the value we’re getting at that price. The anchor is straightforward and clearly displayed to allow us to compare one to the other.

Discounting is one of the most common forms of anchoring, especially when the original price and new price are clearly displayed for customers to interpret.

Social Proof Indicators

Another very common practice, but less obvious, is leveraging social proof indicators as an anchor, before even getting into pricing. Examples from Blue Apron, Casper, and Stitch Fix show the range of this approach.

In the above examples, we see everything from reviews to satisfied customers to products shipped, all serving as anchors before even considering the price. Leveraging these social proof indicators provides an opportunity to anchor customers to very large numbers that will ensure the actual price feels more reasonable.

Of course, as we saw from other experiments, any number can play a role, which presents its own opportunities to get creative.

Key Takeaways

Anchoring is a powerful mechanism in our toolbox of e-commerce and these are the key things to consider when utilizing them in practice.

Make anchors memorable

First and foremost, you get one chance to establish an anchor in most cases. It’s important to be discerning about how and what you use to serve as an anchor. Where will the anchor be introduced? Will it be competing with anything else? Is it memorable? Is it easy to compare the anchor to the value of your product/service?

All of these considerations will impact how effective your anchor is at coloring perceived value.

Remember anchors come from everywhere

Anchors don’t have to match what they are anchoring. That is to say, if you are trying to change the perceived value of price, you don’t need to use price as a comparison point. Anything from reviews to social security numbers can serve as anchors. Make them relevant, but consider the possibilities.

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Overall, the anchoring bias is an interesting model to explore. It is ever-present across the consumer experience, and you’ll begin to notice it everywhere, now that it’s top of mind. When used correctly, it can be a powerful lever to impact the perceived value of products and services across industries.

Sources

1. Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124–1131. https://doi.org/10.1126/science.185.4157.1124

2. Ariely, D., Loewenstein, G., & Prelec, D. (2003). “Coherent Arbitrariness”: Stable Demand Curves Without Stable Preferences. The Quarterly Journal of Economics, 118(1), 73–106. https://doi.org/10.1162/00335530360535153

3. Simonson, I., & Drolet, A. (2004). Anchoring Effects on Consumers’ Willingness‐to‐Pay and Willingness‐to‐Accept. Journal of Consumer Research, 31(3), 681–690. https://doi.org/10.1086/425103

4. Kahneman, D. (2013). Thinking, Fast and Slow (1st ed.). Farrar, Straus and Giroux.

5. Ariely, D. (2010). Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions. HarperCollins.